California Municipal Bonds & Fixed Income in Newport Beach
Holt Investment Partners builds portfolios of individual, high-grade California municipal bonds for investors who want dependable income they can keep more of. We focus on bonds generally rated AA or AAA at purchase, bought one bond at a time and structured around when you need your money.
What Is a Municipal Bond?
A municipal bond is a loan to a state, city, school district, water agency or other public entity. They use the money to build schools, roads, water systems and hospitals. In return, they pay you interest, usually twice a year, and return your principal when the bond matures.
Most municipal bonds fall into two groups:
General obligation (GO) bonds are backed by the issuer’s taxing power.
Revenue bonds are repaid from a specific source, such as water bills, utility fees or airport charges.
A Strong Track Record
High-grade municipal bonds have historically been among the most reliable investments available. According to Moody’s, the average five-year default rate for Moody’s-rated municipal bonds from 1970 to 2022 was 0.08%. Global corporate bonds over the same period: 6.9%.
Defaults are rare, but they do happen. Credit quality is where we spend most of our time. We focus on issuers with strong finances, dependable revenue and high ratings, and we keep watching them after we buy.
The Double Tax Advantage for Californians
For California residents, interest on California municipal bonds is generally exempt from both federal income tax and California state income tax. In one of the highest-tax states in the country, that matters.
Bonds from other states are generally exempt from federal tax only; California taxes their interest. That’s why we focus on California issuers for California clients.
Tax-Equivalent Yield: What a Muni Is Really Worth to You
Because municipal interest is generally tax-exempt, its yield isn’t directly comparable to a taxable investment. Tax-equivalent yield is the taxable yield you’d need to earn to keep the same amount after taxes.
Tax-equivalent yield = muni yield ÷ (1 − your combined tax rate)
Hypothetical example: An investor in the 35% federal bracket and 9.3% California bracket buys a California municipal bond yielding 3.50%.
3.50% ÷ (1 − 0.443) = about 6.28%
To match it, that investor would need a taxable bond or CD paying about 6.28%.
This example is for illustration only and doesn’t represent any specific security. It ignores deductions, the alternative minimum tax and other factors. Your actual tax situation will differ.
Municipal Bonds vs. CDs
CDsCalifornia Municipal BondsFederal tax on interestTaxableGenerally exemptCalifornia tax on interestTaxableGenerally exempt (CA issuers)Typical maturitiesMonths to ~5 years1 to 30+ yearsCan sell before maturityEarly withdrawal penaltyYes, at market priceFDIC insuredYes, up to limitsNoPrice changes before maturityNone if held to termPrices move with interest rates
CDs have their place, and FDIC insurance is a real advantage. For investors in high tax brackets, though, high-grade municipal bonds often leave more income in your pocket after taxes.
What Is a Bond Ladder?
A bond ladder spreads your money across bonds that mature in different years, for example one maturing every year from 2027 to 2036.
Predictable income: you know what’s coming in and when.
Less interest-rate risk: as bonds mature, the money can be reinvested at current rates, whether rates are higher or lower.
Built-in cash flow: a maturing bond can cover a known expense, like a tax bill, a home project or living expenses in retirement.
No forced selling: if you hold bonds to maturity, day-to-day price swings don’t change what you receive at maturity, barring default.
We build each ladder around your timeline. Every client’s is different.
Why Individual Bonds Instead of a Bond Fund
A bond fund never matures. Its price moves with interest rates indefinitely, and you have no say over what it holds or when it sells.
With individual bonds:
You know each bond’s maturity date and the amount you’re scheduled to receive.
You see exactly which issuers you own.
There is no fund-level expense ratio.
We can use tax-loss harvesting on individual positions when it makes sense.
How We Buy Bonds
The municipal market is huge and fragmented, with tens of thousands of issuers, and prices can vary a lot from dealer to dealer. How a bond is bought matters as much as which bond you buy.
Shopping the market across multiple dealers instead of taking the first offer
Checking recent trade prices on EMMA, the official municipal market data site, before we buy
Reviewing call features, so we know when an issuer can pay a bond off early
Weighing premium and discount bonds for their tax effects
Watching credit after purchase, not just at purchase
Things Every Bond Investor Should Know
Bond prices change. When rates rise, existing bond prices fall, and the reverse. If you hold to maturity, those swings don’t change what you receive at maturity, barring default.
Bonds can be called. Some issuers can repay a bond early, often when rates fall.
Some bonds trade infrequently. Selling before maturity may mean accepting a lower price.
Tax-exempt income can still affect other things, including taxation of Social Security benefits and Medicare premiums (IRMAA). Some bonds are subject to the alternative minimum tax. Your CPA should be part of the conversation.
Frequently Asked Questions
Are municipal bonds tax-free?
For California residents, interest on California municipal bonds is generally exempt from federal and California income tax. Capital gains from selling or redeeming a bond above its purchase price are taxable, and some bonds are subject to the alternative minimum tax.
What does a AA or AAA rating mean?
Ratings from agencies like Moody’s and S&P measure an issuer’s ability to repay. AAA and AA are the two highest categories. Ratings can change, which is why we keep monitoring.
What happens if I need my money before a bond matures?
Bonds can be sold before maturity at the market price, which may be higher or lower than what you paid. A well-built ladder keeps a bond maturing regularly, so you rarely need to sell.
Can you review the bonds I already own?
Yes. We’ll show you what you own: yields, maturities, call dates and credit quality.
Free Bond Portfolio Review
Already own municipal bonds or CDs? We’ll review what you hold, including maturities, call dates, credit quality and what you’re really earning after taxes. There’s no cost and no obligation.
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302½ Marine Avenue, Balboa Island, Newport Beach, CA 92662 · (949) 342-5405